Taxation of Distributions

[Seeker]

iShares states "Unitholders of record on December 29, 2011 will receive cash distributions payable on January 4, 2012". For Canadian tax purposes, is income reported in the year of entitlement or the year of receipt of the distribution?

[like_to_retire]

iShares states "Unitholders of record on December 29, 2011 will receive cash distributions payable on January 4, 2012". For Canadian tax purposes, is income reported in the year of entitlement or the year of receipt of the distribution?

Unitholders of record on December 29, 2011 will receive cash distributions - is the key statement.

Taxable for 2011.

[Arby]

It depends on the characteristic of the distribution. If the distributions are in the form of interest or other income, they are taxed in the year they are earned, (which is the year of the Record Date). If the distributions are in the form of dividends, they are taxed in the year they are actually received, (which is the year of the Payment Date). I'm not sure what happens if the distribution is a mixture of dividends and other income.

[DavidR]

It depends on the characteristic of the distribution. If the distributions are in the form of interest or other income, they are taxed in the year they are earned, (which is the year of the Record Date). If the distributions are in the form of dividends, they are taxed in the year they are actually received, (which is the year of the Payment Date).

I'm not sure what happens if the distribution is a mixture of dividends and other income.

I usually think of it in terms of who the payer is: Mutual fund trusts and business trusts (including REITs) claim a deduction on their tax returns for distributions to unitholders. The unitholder reports the income on the same effective date that the trust claims the deduction. Distributions declared in late December will generally appear on the T3 slip for that year, even if the cash isn't paid until January.

I believe distributions from a mutual fund trust with a record date in 2011 but a payment date in 2012 would be taxable in 2011, even if 100% of the distributions were characterized as eligible dividends for tax purposes, because the distribution came from a a trust (ie. a "flow-through entity").

Dividends from a corporation (t5 slips, not T3 slips) are taxed based on the payment date. (Telus for example declared a dividend with a December 2011 record date but a payment date in January 2012. I believe the January 2012 payments will not be included when T5 slips for 2011 are prepared.)

[like_to_retire]

I believe distributions from a mutual fund trust with a record date in 2011 but a payment date in 2012 would be taxable in 2011

Agreed. It doesn't appear to matter when the cash is actual payed out, the companies (in my experience) always use the record date.

I just looked at the T3 from Claymore, where I use to own CPD.
The 2010 T3 from last year shows a final dividend payment on Jan 7th 2011 (when the payment was actually made for the dividend). The record date was Dec 30 2010 and so I was taxed for the dividend in that year of 2010.

ltr

[Seeker]

Thank you, gentlemen, for taking the time to respond and explain.

To DavidR,
Coincidently, it was a dividend from Telus, received in early January of 2011, which was not included in my T5 slip total for 2010, that generated my confusion. Again, thank you for the clarification.

Seeker

[StuBee]

A question (or questions) regarding withholding tax and funds (including ETF's):

I presume that Canadian domiciled funds that are invested in foreign countries are subject to withholding tax by the foreign country (no matter which type of personal account may hold the Canadian fund).

I understand that a US domiciled ETF invested in US equity is subject to withholding tax by the US government EXCEPT if it is held within a RRSP/RRIF. Are there any other jurisdictions where a similar situation applies??

What about an American entity like EAF (Ishares which track MSCI EAFE) which is held in a RRSP?

What about a fund within a RRSP (or ETF) that is invested in both US and other foreign equity? In this latter case is some of the income subject to withholding tax and some not ?